If you're looking to buy a home on the cheap, you might have stumbled across a probate sale. But what exactly is a probate sale? Basically it means that the homeowner died without a will bequeathing the house to an heir. In most cases, this means that an estate attorney or representative has to sell the property in order to liquidate the asset and distribute the money to family members -- and that can spell a major bargain for you.
Probate sales can be attractive to buyers because they're often priced below their market value, much like foreclosures. But since a court has to supervise and approve the home's sale, the process is more complicated -- and lengthier -- than usual.
Here's a look at the legal hoops you'll have to jump through to make a probate sale happen.
How a probate sale works
In a probate sale, the estate attorney or other representative hires a real estate agent to post the listing and sell the home. While buyers may be drawn in by the budget-friendly price, probate homes are not for everyone, starting with the fact that the homes are typically sold as is.
"Usually the estate doesn't have an interest in renovating the property, either because of logistics, timing, or available funds," says Richard Witt, owner of Long Island Cash Home Buyer. So, don't expect the estate owners to make any repairs before you move in; what you see is what you get. That said, those in the know advise getting a home inspection just to make sure there aren't major problems that would deter you from moving forward.
Here's another difference with probate sales: If you decide to make an offer, that must be accompanied by a deposit totaling 10% of the price of the home. That's in addition to your down payment, although this deposit can be folded into your down payment if the deal goes through.
Once your offer is accepted by the estate's representative, that's not where the negotiations end. From there, the estate attorney has to petition the court to approve the sale. And as you might expect, courts move at their own pace; expect to wait 30 to 45 days (or even longer) for your day in court when you can claim your home.
Playing the waiting game isn't the only frustrating aspect of probate sales. In certain states, even as your offer is making its way through the courts, the home can remain listed and be open to other bidders who may be allowed to show up at your hearing and outbid your offer.
"In California, for instance, probate homes typically do go up for auction at the courthouse after the offer comes in," says David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. "This builds a lot of uncertainty into the process for the bidder who gets the ball rolling in the first place." All that said, you also have a right to counteroffer and, even if you do lose out, you should at least get your 10% deposit back.
Should you buy a probate sale?
Bottom line: If you want to buy a home quickly with as few curveballs as humanly possible, probate sales aren't for you. But if you're a bargain hunter with vast reserves of patience and flexibility, you may have what it takes to pursue a probate sale and reap the benefits.